“Is the best strategy for the financially limited, to buy more land further from the city or an apartment or townhouse closer to the city and therefore less land?”
Whenever a question such as this one is posed, it exposes the myths that have been perpetuated around property investing since it first became a popular investment choice. Specifically, those myths are:
- The more land a property has, the more valuable it is;
- The closer to the city a property is, the better it will grow, and
- A townhouse or unit is a better buy for the financially limited.
In addressing these myths, there are a few important things all property investors must know.
- Firstly, the true value of a property and its growth potential relates to demand, not to what type of property it is. In some areas units grow faster, and in others it’s houses – the demand relates to the types of people who live in an area and the type of property they are most likely going to want to rent, and buy. Generally, we do see more demand for units closer to the big cities, but that does not mean that a unit in an outer suburb, or a regional area, won’t be a great choice if the demand for that product exists and the supply for it is low. In a nutshell, the type of property you should buy depends on many factors, one of them being what is in demand by the people who live there, or who are likely to live there.
- Secondly, the amount of land a property sits on only impacts on its value if there is something that can be done with that extra land. So a house on 800 sqm in the suburbs is no more valuable than a house on 700 sqm in that same suburb unless that larger block has future subdivision potential. In this day and age, some might suggest the larger block would be less in demand, given the busy lives of people and the growing demand for more compact, easy care outdoor spaces.
If you are financially limited, don’t make the mistake of thinking that a cheaper buy of a unit can at least get you on the property ladder unless that unit also exists in an area that has all the important fundamentals for growth. It is not better to buy something than nothing at all, because buying the wrong type of property in an area without the fundamentals can be costly over the longer term, and result in no growth to your net worth. In addition, don’t think that getting more land immediately means you have a better buy.
The main things to consider when buying property as an investment are: ‘Is this type of property right for the demand in this area?’, and “Does the area have the growth drivers needed to ensure that the property ultimately grows in value, and provides a good rent return along the way’. Whether it is a unit, a house on a small or large block or a townhouse will be completely driven by those two questions. If your financial limitation prevents you from buying a property satisfying the criteria for good growth and rent return, then wait until you have saved some more before taking the plunge.